Welcome to the very first edition of Ask A Broker with Robert E. Silva! In this blog, we will discuss down payments requirements for home loans.
Q: How much of a Down Payment do I need to buy?
A: Now that’s a loaded question I get all the time, but at the end of the day it comes down to two answers.
Answer 1: At LEAST 20% of the asking price, CASH.
Answer 2: Now for the rest of us who don’t have a ton of cash on hand, it’s going to depend on several factors. Your Credit Score, your Debt to Income Ratio, and the Loan Program you qualify for.
Your credit score (FICO) will tell banks how much of a financial risk you are when it comes to taking a loan. Your Debt to Income Ratio will let you know how much cash flow you have once you calculate your gross adjusted income and outgoing debt payments (credit cards, car payments, student loans, etc.)
Once you have that, your lender will then take your existing information and see what loan programs you qualify for. Loan programs vary by institution and region, but the 3 most common loan programs are FHA, Conventional 5% Down, and Conventional 10% Down. Let’s take a look at an example below:
1234 Mocking Bird Lane, Anytown, USA.
Let’s say you are buying it for $300K, FHA, 3.25% down and buyer is paying for closing cost (escrow fees, home inspections, etc).
FHA (3.25%) Conventional (5%) Conventional (10%)
Down Payment $9,750.00 $15,000.00 $30,000.00
Closing Cost $9,000.00 $9,000.00 $9,000.00
Total needed $18,750.00 $24,000.00 $39,000.00
As you can see, your down payment will vary greatly depending on the type of loan you qualify for. Keep in mind, there are many more types of loan programs available like the VA loan for our military service members and Adjustable Rate Mortgages for quick turnaround properties. It all depends on your personal finance qualification.
At the end of the day, FICO scores need to be around 680, plus income ceiling to account for closing costs and other unexpected items. If you or someone you know is thinking of purchasing a home, please don’t hesitate to contact us so we can help them plan for home ownership today!
-Robert E. Silva
Real Estate & Mortgage Broker